Even With A 28% Surge, Cautious Investors Are Not Rewarding MTN Group Limited's (JSE:MTN) Performance Completely

Despite an already strong run, MTN Group Limited (JSE:MTN) shares have been powering on, with a gain of 28% in the last thirty days. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, given about half the companies operating in South Africa's Wireless Telecom industry have price-to-sales ratios (or "P/S") above 1.7x, you may still consider MTN Group as an attractive investment with its 1.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for MTN Group

What Does MTN Group's Recent Performance Look Like?

MTN Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think MTN Group's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

MTN Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 9.1% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 7.7% each year during the coming three years according to the ten analysts following the company. With the industry only predicted to deliver 5.6% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that MTN Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From MTN Group's P/S?

Despite MTN Group's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at MTN Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You always need to take note of risks, for example - MTN Group has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.